Saturday, August 18, 2012

Are you still Comfortable?

Below is a newsletter article that will be out in a few weeks.

Are you still Comfortable?

My last newsletter article focused on comfortable changes; I stated …..”A pro-active risk management strategy that allows you to be successful in the future whether the crop prices for corn, wheat, soybeans, and sunflowers go up, down, or sideways?”  My idea’s where not to say that the markets where going up or down; as I still don’t know for sure what will happen in the future.  But I wanted to communicate that at the end of the day to do something that allowed you to be comfortable no matter what happened.  My message this month is more of the same.  Are you still comfortable? 

Did you make some decent sales on the massive rally we had over the past few months?  If you felt you where oversold did you re-own some sales with min price contracts or call options?  Are you going to be comfortable if our markets turn around and lose a couple dollars a bushel or more?  What about if we see 10.00 or 12.00 corn or higher?  Have you done things that allow you to be comfortable not knowing what the next move or event causing the move will be?

Once again I am not here to tell you or tell anyone where we are going to go from here; because if I really new and never got it wrong I think I would be on a beach someplace.  I can give you my opinion and my opinion is that the drought we have had is off of the charts.  It is so extreme that there is really no telling what could happen to prices if we don’t ration off demand.  What could happen to prices if we see another dry poor yielding year in the US next year?  What about if the dry weather hits South America again?  What happens if it starts spilling over to some of the wheat producing areas?  I think there could really be no limit as to where we could go.  But at the end of the day it really comes down to demand and I have a good example of just how important demand can be.  In Aug-Sept of 2011 sunflower prices traded up to 50.00 a cwt or so; we followed that up with the smallest US crop since the mid 1970’s.  What do you think happened to sunflower prices?  Well for the majority of the year they traded around 25.00 a cwt or half of what they did last summer despite the supply being cut.

Why?  One word DEMAND and a lack of selling when the demand was around.   High prices cure high prices and demand slipped so much that the rally never happened to the sunflower market like many thought it would. 

My point is that this year could be very similar for the corn and bean markets.  On the other hand it could make the 2008 spring wheat market look cheap.  If we see supplies continue to get smaller and follow that up with good solid demand there really is no limit to what the last buyer could have to pay.  On the other hand if we start shutting down ethanol plants left and right who’s to say that we don’t end up with ton’s of corn left at the end of the day.  I don’t know how it will shake out and I really am not going to try and guess.  I do know that if we get price breaks or corrections that should add back demand and longer term price beaks today should help us go higher later.  On the other side if we see corn rally another couple of dollars we could see demand slip more then expected and that could cause a long period of weak prices.  The bottom line is I want to make sure that I am still comfortable no matter what the next move is.  I don’t want guys to have the stress of thinking they sold too soon on days the market goes up nor do we want guys to have the stress of thinking they haven’t sold enough on the days the markets are going down.  We want to find a happy comfortable place in the middle and we want to do that via using some of the tools that Midwest Cooperatives and our Country Hedging Branch has.

If you need some help with your marketing plans and getting yourself in a comfortable situation please give us a call.

One other quick announcement; back in the middle of August we started sending out a Voice Recording Mid Day Market up date.  This goes out around noon and it is a quick 30 second to 1 ½ minute update on what the markets are doing and why.  Sometimes we will include information on hot prices we might have or basis information.  If you are not getting this please give us a call and we can get you added; there is no cost for this service; just a little information to help you make the best decision possible.

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